Another financial crime band-aid

News broke yesterday morning that ASIC Chairman James Shipton has greenlit the prospect of tactical taskforces to be embedded in our banks (for up to 8 weeks at a time) in an attempt to address the surging and endemic misconduct present in our banking system.

Treasurer and chief Royal Commission resister, Scott Morrison, has backed the idea with $70m of additional funding. These teams would principally guide governance and management systems identifying, reporting and remediating misconduct.

“Then these folks will be given a space, in my experience that’s usually a conference room, and then they will have points of contact on a daily basis and say ‘OK, we would like to speak to the person in charge of this, we would like to sample some documents related to this issue, we would like a demonstration of your technology systems’ and maybe speak to the person who designed the technology system,” Mr Shipton said. “At the end of the week, I might want to have a catch-up with the chief risk officer,” he said.

So after all the revelations exposed over a royal commission of conflicted, systemic, problems that have taken years and in some cases decades to surface, the response is to plant a couple of corporate cops in a back office bank boardroom with a tray of bagels and pot of brew?

I struggle to see what this might achieve. Six to eight weeks is the length of a decent holiday (or sabbatical) for someone who cannot attend a board meeting without lighting up a cigar and breaking into maniacal laughter about some new public rort in the pipeline. For the rest, however, business as usual, with a mind on the p’s and q’s will prevail as it always does in the corporate ecosystem.

My take is that this is another band-aid. Massive fines for companies have almost no effect on the executives who oversaw the crimes. The fines are paid by shareholders. Most of the executives benefitted financially from their crimes through inflated salaries and bonuses for generating the revenue that eventually turned out to be illicit.

At the moment, the risk/return tradeoff for breaking the law at a large financial company is:

  • Upside: is getting a salary + bonus in the hundreds of thousands or millions of dollars
  • Downside: lose your job. Shareholders of your former company pay a fine

For many people, that is a very attractive payoff. And so it is no surprise that the crimes occur across almost every major financial institution.

The problem, in my view, is that ASIC finds that it can successfully impose hundreds of millions of dollars in fines for companies breaking the law, but it cannot successfully put an executive in jail for the same crime.

Until executives actually go to jail for breaking the law we are not going to see a change in behaviour.

The Royal Commission today also raised the prospect of criminal behaviour:

“[Was there] any contemplation of a criminal proceeding? Ever?” Mr Hayne said.

Ms Smith said that was not contemplated, prompting Mr Hayne to ask: “Did you think yourself that taking money to which there was no entitlement raised a question for criminal law?”

Ms Smith replied that she did not.

Rather than a token ASIC agent trailing executives for six weeks at a time, Parliament would be far better served working out how to change the laws so that ASIC can successfully prosecute executives who break the law.

Damien Klassen is Head of Investments at the Macrobusiness Fund, which is powered by Nucleus Wealth.

The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance. Damien Klassen is an authorised representative of Nucleus Wealth Management, a Corporate Authorised Representative of Integrity Private Wealth Pty Ltd, AFSL 436298.

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    • Exactly – and the confiscation of ill-gotten gains !
      The idea they’re presenting is straight out of the Keystone Kops operational manual – you couldn’t make it up if you tried.

    • Yes … that point was missed when they were beating their chests about how decisive and tough they are being with this incredible response to a a terrible situation. Great spin.

  1. This will be a sterling opportunity for the banks to groom and capture ASIC officers 6-10 at a time.

    Should be great!

    • Spot on, one guy I know who worked for CBA said ASIC are well aware of the fraud taking place and won’t do anything. Also CBA had heavy provisions for any fallout as a result of the Royal Commission, must have got those past the captured auditors as well!

      • Very good info, and what I would expect.

        Provisions are like a corporate force-field. Once something is provided for, the outcome doesn’t really matter. It’s dealt with. Nobody’s sweating it!

      • Mining BoganMEMBER

        Have a look at tuesday night’s The Drum. Bloke called Wheeldon opened up on how ASIC works for the banks.

        Then look at the stunned looks of the other guests. Not supposed to talk about those sort of things. If he had told everyone that he enjoyed shagging hedgehogs there would have been less shock.

    • My take was that it was a secondment or some sort of paid internship.
      “Everyone, here’s Peachy, the new work experience kid. Champ, can you do us a solid and duck out to get us all some coffee. Here’s a fiftty, you can keep the change.”

      • Thanks boss. If I do well and don’t get in the way too much, do you think there’s a reasonable prospect of a full time job here? Or, if not, Mr Footsore (is it ok if I call you that, or should I call you Sir?) would you maybe be willing to give your mate who is the division head at the other big4 a call and put in a good word, to help me get in there?

      • “Jeez, they neutered you well and good. You don’t ask son. Asking is for the weak. You take. Take until there is nothing left, and then you find a way to take some more. Man, I don’t usually get this worked up so early in the morning. Cancel those coffees, kid. Anyone got any blow? You want to be a banker? I’ll f’ing show you how to be a banker.”

    • That’s the first thing I thought of. Why not surprise raids, and what others have said prison time if crime is detected. This lot will never be crime free.

  2. So what is the role of the internal audit team? In many cases they pay big dollars to get the Big 4 in to do exactly what is described above. One conclusion I draw is that the Big 4 are expensive, useless organisations that have no impact.

    • The big 4 audit firms provide cover for an organisation. That’s it. That’s the value they add – “oh look, Steve McAnglo-Saxon, partner at big 4 xyz, has signed off, he’s from outside and he is saying we’re all good after the piles of money we’ve paid to his firm to send 1st year grads to look at our things. so we’re all good”.

      Audit firms don’t care about auditing – that is why they send junior auditors and first years to businesses. Having to explain basic things to external audit is a well-known but little-discussed problem.

  3. Is this an attempt to appease the ‘Ratings Agencies’ as they contemplate a general downgrade.

    • The only thing they fear nowadays is a class action……….this was always going to happen since Senior Loan Officers lost their independence about 1995……….Oh well, when they are all nationalised as public utilities we may get them back……enforcement is useless, you have to stop it happening in the first place

  4. “Until executives actually go to jail for breaking the law we are not going to see a change in behaviour.”

    Like a lot of other things in Aus the Banks can’t be fixed. To my first hand knowledge the Banks have been a bunch totally corrupt lying thieving cheating ar..holes for more than 20 years…and yes – 1995 looks pretty right for the big breakout of stinking corruption.
    The only way to fix it is to totally destroy each of the big 4; throw as many as possible in gaol and fire every other last single employee and not allow any of them a job in finance ever again. There is no other way.
    Then you’ve got the problem of finding people sufficiently principled to replace them. Remember this all has to happen after all the Lawyers are gotten rid of.
    The answers lie back in time.

  5. No point changing the law when the regulator doesn’t even contemplate using it, and does not consider these crimes a question for criminal law.
    The enforcement is what needs to change. More laws that aren’t used won’t change anything.

  6. Agree. I have seen the regulatory authorities all too quick to throw the proverbial book at small private businesses trying to do their best. seems to me in Australia if you Big enough you can do as you please. going forward with criminal charges against the directors would have been a small but good start

  7. Knowing Australia they could implement criminal law for executive misbehaviour, but it would never be wielded against Coles, Woolworths, Big 4 or any other major corporations.

    No it would be your Aldis and your Credit Unions that are constantly having people thrown in the slammer. Corporate law is just there to raise compliance costs so that competition can’t arise.